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Sunday, September 05, 2010

Two Russians and an Owner Meet in the Star

If this summer’s hockey off season has a subject it is “circumvention.” No, it’s not a movie in which Leonardo DiCaprio plays a hockey player who dreams of a $100 million contract, it would be the concept of structuring an NHL player contract in a manner that adheres to the arithmetic of the league salary cap while subverting the intent of the cap to provide for competitive balance (i.e., the ability to pay and retain players) among the clubs and cost control.

The poster child for this summer’s defining issue is, of course, Ilya Kovalchuk. The once and future New Jersey Devil forward sat on the sidelines as the league and the players’ association wriggled their way to an agreement over the contract for Kovalchuk, finally agreeing on a $100 million, 15-year deal. There is much that remains unsettled about what the contract means for what shall remain allowable in terms of length of contract and the ability of teams to front load agreements. But for the moment we have the reaction to the Kovalchuk deal to contemplate. And one reaction was baffling to read.

Which brings us to this article in the Toronto Star by Damien Cox. First, a bit of context. Cox’ columnist page in The Star described him as a columnist who “loves to stir up trouble while chuckling at the foibles of the sporting world. He'll start with the NHL's Toronto Maple Leafs, an organization he's been snooping around for almost two decades, but is happy to stick his nose into a few other games and places where athletes reside.” Well, he stirred up trouble and stuck his nose into a few other places in his column outing the “outlaw owners” who benefit from the Kovalchuk deal.

Of Capitals majority owner Ted Leonsis, Cox writes:

“Ted Leonsis, to name another, was a hawk during the last labour struggle and now drinks deeply and gratefully from the revenue-sharing trough. The president of his Washington Capitals, Dick Patrick, is part of one of hockey’s most famous families and a committed league man.

“But when they wanted to give Alexander Ovechkin a 13-year, $124 million contract, one they knew Bettman wouldn’t approve of, they did it anyway. That encouraged others, like the bizarre Tampa twosome of Len Barrie and Oren Koules, to engineer a deal with Vinny Lecavalier that started with a $10 million salary and wound down to $1 million.

“Well, because they wanted to win Stanley Cups. So they worked in concert with player agents — the very people they have accused of wrecking the industry — to cook up contracts that basically allowed them more bang for their cap buck.”

Conflating the Capitals’ contract with Alex Ovechkin and the Kovalchuk deal or similarly structured contracts under the current collective bargaining agreement is a stretch at best. There are six contracts that command attention as a product of their length, total dollar value, and year-to-year variation in salary. They belong to Kovalchuk, Ovechkin, Lecavalier, Marian Hossa, Roberto Luongo, and Rick DiPietro. All are more than ten years in length; all have a total dollar value in excess of $60 million (two – Ovechkin’s and Kovalchuk’s – are at least $100 million). There the similarities end. The six contracts break down into two general groups. There are those that snake through their respective terms with different annual salary amounts that suggest, at least, a desire to satisfy the “having one’s cake” (satisfying the player’s demand for high overall compensation value) and “eating it too” criteria (ensuring that the later years of the contract are cap-friendly and, if need be “trade friendly,” or if the player decides to forego the later low compensation years, convenient). Then there are those deals that track roughly evenly the average annual compensation determined by years and total dollars.

Here are the four contracts that fall into the latter group, those of Kovalchuk, Lecavalier, Hossa, and Luongo:

There is a common “look” to them, but beyond that is a common structure, most notably the precipitous decrease in compensation after year eight of the respective deals. After year eight, Kovalchuk’s compensation (preliminary, according to capgeek.com) drops 30 percent, Lecavalier’s by 53 percent, Luongo’s by 49.6 percent, and Hossa’s by 75 percent. The other side of that coin is that though year eight, the bulk of compensation has been paid to the player. Through year eight, Kovalchuk would have received 79 percent of the total value of his contract, Hossa 94 percent, Luongo 89 percent, and Lecavalier 92 percent. All of these deals would still have at least four more years to run, and Kovalchuk’s would have seven years to recover the remaining 21 percent of the deal.

Now, compare those to the contracts of Alex Ovechkin and Rick DiPietro:

These contracts have a common look about them, too. They show little, if any, year-to-year variation in compensation. In fact, while all four of the first group show those significant decreases in the out years of the respective deals, Ovechkin’s shows a bump up in year seven that carries through over the remaining seven years of that deal. DiPietro’s compensation is evenly distributed among all 15 years of his deal.

If one looks at the other side of the coin, DiPietro receives 6.7 percent of the total value of his contract in each and every year (his deal, controversial when signed, looks almost quaint now). Ovechkin receives 44 percent of his total dollar value through year six, 56 percent over the last seven years of the contract. These values are not significantly different that the 46 percent of total compensation he would receive over the first six years if the total value was divided evenly over the years, or the 54 percent he would receive over the last seven years. And then there is again the matter that his compensation actually increases in year seven and is maintained over the remaining life of the contract.

Cox’ article appears to suffer from a divergence of issues. The Kovalchuk issue is one that dominated the summer off-season, and its meandering path to a solution does have its consequences for future contracts, and perhaps the next round of collective bargaining. The article is far from clear, however, what Alex Ovechkin’s contract (or the manner in which it might have been negotiated with club management) has on that matter.

What does Kovalchuk’s deal (or Ovechkin’s) have to do with revenue sharing? Perhaps there is a point to be made that there is a connection, but Cox doesn’t make it. What does the relationship among owners and player agents have to do with Kovalchuk’s or Ovechkin’s respective contracts (Ovechkin’s contract, not insignificantly, was finalized without the benefit of a player agent in direct negotiations with the club)?

Cox introduces issues (we hesitate to call it “evidence”) that suggest one could draw a straight line from the machinations of the Kovalchuk deal to a cabal of outlaw owners turning on the Commissioner, with an impotent players union in the middle. Frankly, we do think that there are owners out there who in their own sense want their cake and eat it, too. They want that fine patina of “cost certainty” that a salary cap provides in theory. But they like having, or would like to have, the freedom to game the system to be able to bend the cap to their liking, to pay those high-end players the compensation they might otherwise (read: in the absence of a cap) pay, tacking on meaningless seasons at the end so that the arithmetic works to bring in other players. They can afford to make those up-front outlays that other clubs perhaps cannot afford. It is a close cousin of the spendthrift ways in which some franchises engaged before the lockout – behavior that required a cap so that ownership could be saved from itself in the name of "cost certainty." Maybe some owners won’t take being “saved” for an answer.

What Ted Leonsis has to do with this issue escapes us. If Cox wanted to expose the Caps participation in revenue sharing, or if he wanted to make an argument on the damage that 13-year, $124 million contracts do to the game, he could have done that. But linking Alex Ovechkin’s contract and Ted Leonsis’ role in it to the Kovalchuk issue as a means to “prove” that there is a group of outlaw owners looking out only for their competitive interests? Maybe there are outlaw owners who will, out of selfish motives attached to the salary cap or revenue sharing, do damage to the sport. We wouldn’t be surprised if there are, but we don’t know, certainly not from the arguments made in this article. Maybe Cox just has a beef with ownership in general and perhaps Leonsis in particular. We don’t know, but whatever case he is trying to make, the dots just don’t connect...

3 comments:

There is perhaps no one as irritating as Cox when it comes to the issue -- or non-issue, really -- of fighting at the pro level. Not even Pierre McGuire is as insufferable. Any article where Cox doesn't bitch about fighting or the lack of female HOF inductees has to be considered a success.

One thing that I haven't seen mentioned about the Captain A.O. contract is that his salary cap figure is HIGHER than his actual salary in the front end of the contract which is the opposite of the other deals that have been getting so much attention where the salary cap figure is LOWER than the actual salary.

In other words, the Caps backloaded Captain A.O.'s contract taking the "dead $$$$$" up front instead of on the back end of the deal.

You might be able to forge a backwards argument that it circumvents the cap in the out years but in this instnace, the team is "getting back" the cap space that they forfeited early on in the deal. We've yet to see a team that front-loaded a contract have to take their medicine in the out years. So if anything, the Caps are actually being punished here by doing things in this fashion.

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